The VoIP challenge.

For the past decade, a spectre has haunting the world's big telecoms companies. It is called packetisation. Packetisation means that voice calls, whether over fixed or mobile networks, can be bundled up as IP (internet protocol) packets and sent over a public or private network, just like any other form of data.

The result: revenue-earning voice traffic can be, and is being, re-routed over any IP data network, where there is little metering.

With voice over IP (VoIP) take up accelerating fast, all the operators - including mobile service providers - face a huge challenge. They know that voice-call revenue will plummet as customers switch to VoIP.

How are the big operators responding? Almost all aim to transform themselves into services suppliers - offering data, voice and video services, as well as more advanced forms of application support. Since 2001, BT has moved quickly into developing services aimed at tackling fixedmobile substitution, including its mobile virtual private network (VPN) service, integrated access to BT's Openzone public WiFi 'hot spots', a trial VoIP service, and a range of business services. "I am on the side of those that say BT has to be radical," says Ben Verwaayen, CEO of BT.

Verwaayen, speaking at the recent Gartner Symposium in Cannes, said BT is looking to use its wealth of legacy infrastructure to provide services that customers will be willing to pay for.

BT has won some support from sector analysts. It is one of the few European telcos taking steps to address the growing threat from IP, says Martin Gutberlet, principal analyst at Gartner. "Integration with Openzone hotspots raises the possibility of low-cost voice over IP calls," he explains.

Kai-Uwe Ricke, CEO of German operator Deutsche Telekom (DT), also sees the future in services - but DT is moving more cautiously. "The fixed line future is broadband services," he told the Gartner conference - but he is initially focusing on the business, rather than the consumer market.

"Convergence [of data and voice] is real in enterprises, but not residential." Under Ricke's stewardship, DT is attempting to branch out into business process support. "DT is not a network provider anymore, it's an ICT company," says Ricke. "Businesses need billing services, HR services, and they need them with guaranteed service levels. These are all things that we have a history in." However, the big operators still lag far behind some of the newer, smaller rivals.

FastWeb, in Italy, for example, is a pioneer "triple play" provider, offering voice, data and video, as well as many add-on services.

"Most European telcos seem unable to lay out a clear road map for how and when IP network and service convergence will happen," says Lars Godell, principal analyst at Forrester Research. "Telcos with technology silos like DT have been slow to roll out new packet voice networks and services."

Meanwhile, the big mobile operators, such as Vodafone, T-Mobile, O2 and Orange, have begun tentatively offering IP based services. However they are largely protected by the current limitations of WiFi networks.

The holy grail is increased ARPU - average revenue per user. Advanced triple play providers in Norway and Italy have ARPU figures of nearly C1000 - over four times the European average - proving those willing to embrace convergence can thrive.